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Penpower Technology Ltd. v. S.P.C. Technology

June 17, 2008

PENPOWER TECHNOLOGY LTD., AND PENPOWER INC., PLAINTIFFS,
v.
S.P.C. TECHNOLOGY, GLZ SERVICE INC., PC MOBILE STATION.COM CORP., JNB GROUP INC., HERBET LIN D.B.A. ALL TECH COMPUTER, IVY LIN D.B.A. IVY COMPUTERS, INC., ELITE NETWORK COMPUTER, INC., ANDY CHEN D.B.A. DRIFTING COMPUTER, JACK WANG D.B.A. SHENZHOU COMPUTER MALL, INC., TONY CHANG D.B.A. AZIANEAGLE, AND NEW YORK COMPUTER SUPPLY, INC., DEFENDANTS.



The opinion of the court was delivered by: Samuel Contiá, United States District Judge.

ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION FOR DEFAULT JUDGMENT

I. INTRODUCTION

The present matter comes before the Court on the Motion for Default Judgment ("Motion") filed by the plaintiffs Penpower Technology Ltd., and Penpower Inc. (collectively "Plaintiffs"). Docket No. 23. Pursuant to Federal Rule of Civil Procedure 55(a), the Clerk of the Court entered default against all Defendants save S.P.C. Technology and GLZ Service, Inc. Docket Nos. 13, 22. Both of these Defendants, however, were voluntarily dismissed. Docket Nos. 5, 14. After reviewing Plaintiffs' Motion and supporting declarations, the Court determined that Plaintiffs had submitted insufficient evidence to support their claims for damages. The Court therefore ordered Plaintiffs to submit additional evidence. See Order Re Plaintiffs' Motion for Default Judgment ("April 15 Order"), Docket No. 27. Plaintiffs have since submitted additional evidence in the form of three declarations and various exhibits. Docket Nos. 28, 29, 30. After reviewing this evidence, the Court, for the following reasons, GRANTS IN PART and DENIES IN PART Plaintiffs' Motion for Default Judgment.

II. BACKGROUND

Plaintiff Penpower Technology, Ltd., is a Taiwanese corporation and Plaintiff Penpower, Inc., is a California-based corporation owned by Penpower Technology, Ltd. Compl., Docket No. 1, PP 1, 2. Plaintiffs are "actively involved in the research, development, manufacture and sale of multilingual handwritten recognition, optical character recognition, voice recognition, biometric recognition, computer handwriting software, and the peripheral parts and products." Id. P 1. Relevant to the present action, Plaintiffs develop and manufacture Chinese-to-English handwriting recognition software and hardware. First Shih Decl. P 8. *fn1 Plaintiffs are the registered owners of the trademark "Penpower." Id. P 6. This trademark is registered with the United States Patent and Trademark Office under the registration numbers 2851603 and 2975420. Id. Plaintiffs are also the authors of Penpower Handwriting Recognition Software and Penpower Jr. Handwriting Recognition Software. Id.

Plaintiffs allege that Defendants have sold and are continuing to sell counterfeit products and products incorporating Penpower handwriting recognition software. Plaintiffs also allege that Defendants have reverse engineered and unlawfully incorporated identical or substantially similar underlying logic, structure, organization and sequencing of Penpower software.

Plaintiffs' Complaint alleges the following causes of action: (1) trademark infringement; (2) unfair competition and false designation of origin; (3) violation of trademark counterfeiting act; (4) unfair competition, deceptive advertising and unfair trade practices under California law; (5) dilution and injury to business reputation under California law; (6) copyright infringement; and (7) unfair, unlawful and fraudulent business practices under California law. See Compl. In their Motion, Plaintiffs seek an injunction preventing Defendants from infringing Plaintiffs' trademarks and copyrights; an injunction ordering Defendants to deliver up for destruction all infringing products; and an injunction ordering Defendants to issue a recall over infringing materials; treble damages in the sum of $677,075.37; statutory damages of $100,000 for willful copyright infringement; punitive damages of $500,000; attorneys' fees of $16,497; and costs of $2,005.

III. LEGAL STANDARD

After entry of default, the Court may enter a default judgment. Fed. R. Civ. P. 55(b). "However, entry of default does not automatically entitle the non-defaulting party to entry of a default judgment regardless of the fact that the effect of entry of a default is to deem allegations admitted." In re Villegas, 132 B.R. 742, 746 (9th Cir. BAP 1991). Rather, "the decision to enter a default judgment is discretionary." Alan Neuman Prods., Inc. v. Albright, 862 F.2d 1388, 1392 (9th Cir. 1988). First, the Court must "assess the adequacy of service of process on the party against whom default is requested." Bd. of Trs. of the N. Cal. Sheet Metal Workers v. Peters, No. C-00-0395 VRW, 2000 U.S. Dist. LEXIS 19065, at *2 (N.D. Cal. Jan. 2, 2001). Once the Court determines that service was sufficient, it may consider the following factors when exercising its discretion to enter a default judgment:

(1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff's substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action, (5) the possibility of a dispute concerning material facts, (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits.

Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986).

IV. DISCUSSION

A. Service of Process

Service of process against all Defendants was adequate. Federal Rule of Civil Procedure 4(e) allows service upon an individual by personally delivering to the individual the summons and complaint. Rule 4(h) provides the standards for service upon corporations, associations, or partnerships. Copies of the summons and complaint were properly served on all Defendants. See Docket Nos. 6, 7, 8, 9, 10, 11, 12, 17, 17-3.

B. Merits of Motion

"The general rule of law is that upon default the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true." Geddes v. United Fin. Group, 559 F.2d 557, 560 (9th Cir. 1977). For the following reasons, the Eitel factors favor default judgment in four of Plaintiffs' seven causes of action.

1. Prejudice

Accepting the allegations in the Complaint as true, Plaintiffs would be prejudiced absent entry of default judgment. If Defendants continue to sell counterfeit products and products incorporating Penpower handwriting recognition software or unlawfully incorporate identical or substantially similar logic, structure, organization, and sequencing of Penpower software into their products, Plaintiffs will likely be without other recourse or recovery. Such a situation qualifies as prejudice. See PepsiCo, Inc. v. Cal. Sec. Cans, 238 F. Supp. 2d 1172, 1177 (C.D. Cal. 2002).

2. Merits of Plaintiffs' Substantive Claims and Sufficiency of Complaint

Plaintiffs assert the following claims: (1) trademark infringement in violation of 15 U.S.C. §1114(1); (2) unfair competition and false designation of origin in violation of 15 U.S.C. § 1125(a); (3) trademark counterfeiting act in violation of 15 U.S.C. § 1116; (4) unfair competition, deceptive advertising and unfair trade practices under California Business and Professions Code § 17200 et seq.; (5) dilution and injury to business reputation under California Business and Professions Code § 14330; (6) copyright infringement in violation of 17 U.S.C. § 101 et seq.; and (7) unfair, unlawful and fraudulent business practices under California Business and Professions Code § 17200 et seq. The Court addresses each in turn.

To prevail on their trademark infringement claim under 15 U.S.C. § 1114(1), Plaintiffs must demonstrate that Defendants used in commerce any reproductions or counterfeits of a registered mark or reproduced or colorably imitated a registered mark in such a manner as to likely cause confusion or to deceive. 15 U.S.C. § 1114(1). Plaintiffs' Complaint properly alleges the elements of this cause of action. Compl. PP 18-21. Accepting the allegations in the Complaint as true, Plaintiffs' claim has merit.

To prevail on their unfair competition and false designation of origin claim under 15 U.S.C. § 1125(a), Plaintiffs must show that Defendants used in commerce a word, term, name, symbol, or device or a false designation of origin that is likely to cause confusion. 15 U.S.C. § 1125(a). In the present case, Plaintiffs properly allege that Defendants have adopted confusingly similar marks, characters, packaging, and graphics for their products. These allegations are adequately pled.

Plaintiffs' third cause of action is brought under the Trademark Counterfeiting Act, 15 U.S.C. § 1116. Section 1116 "vests the district court with the power to grant injunctions according to principles of equity and upon such terms as the court may deem reasonable, to prevent the violation of any right of the trademark owner." Reno Air Racing Ass'n, Inc. v. McCord, 452 F.3d 1126, 1137 (9th Cir. 2006). In particular, § 1116 states that a court may grant an injunction "according to the principles of equity and upon such terms as the court may deem reasonable[] to prevent the violation of any right of the registrant of a mark registered in the Patent and Trademark Office or to prevent violation under subsection (a), (c), or (d) of section 1125." 15 U.S.C. §1116(a).

It is unclear to the Court whether Plaintiffs seek to assert an independent claim under § 1116 or whether Plaintiffs included § 1116 because they seek injunctive relief. At least one Circuit has indicated that § 1116 does not provide an independent cause of action. See Gibraltar, P.R., Inc. v. Otoki Group, Inc., 104 F.3d 616, 618 (4th Cir. 1997) (holding hat a violation of federal law is a necessary predicate for claiming the remedies, including remedies available under 15 U.S.C. § 1116(a)). Nonetheless, Plaintiffs' second cause of action alleges violations of § 1125. The Court therefore construes Plaintiffs' third cause of action as a request for an injunction pursuant to Plaintiffs' § 1125 claim. The Court discusses the appropriate damages and remedies, including injunctive relief, below.

Plaintiffs' fourth cause of action alleges unfair competition, deceptive advertising and unfair trade practices in violation of California Business and Professions Code § 17200 et seq. "California's unfair competition statute prohibits any unfair competition, which means 'any unlawful, unfair or fraudulent business act or practice.'" In re Pomona Valley Med. Group, 476 F.3d 665, 674 (9th Cir. 2007) (citing Cal. Bus. & Prof. Code § 17200 et seq.). "This tripartite test is disjunctive and the plaintiff need only allege one of the three theories to properly plead a claim under section 17200." Med. Instrument Dev. Labs. v. Alcon Labs., CV 05-1138, 2005 U.S. Dist. LEXIS 41411, 2005 WL 1926673, at *5 (N.D. Cal. Aug. 10, 2005). Although this claim is properly pled, it is, as discussed elow, preempted by Plaintiffs' copyright claim.

Plaintiffs' fifth cause of action alleges dilution and injury to business reputation in violation of California Business and Professions Code § 14330. Section 14330 was repealed by statute, effective January 1, 2008. See Stats. 2007, c. 711 (A.B. 1484), § 1. "The repeal of a statute creating a penalty, running either to an individual or the state, at any time before final judgment, extinguishes the right to recover ...


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